Transcript:
Hey guys, it’s Casey Denman here from Tax Sale Academy.com
Thanks so much for joining me on today’s livestream here on Facebook. As always, at the conclusion of this livestream, if you’re looking to learn more about investing in tax defaulted real estate head to taxsaleacademy.com, that’s taxsaleacademy.com.
Today, we’re discussing the bidders that most investors dislike. We’re talking about the bidders that overpay.
Some new investors get frustrated that others are willing to pay more than they are for a property. Now, there are certain strategies and ways around dealing with competition that we discuss in other videos, but it’s important to understand the mechanics behind why others are willing to pay more than you.
Part of being a successful tax sale investor is knowing all the approaches, including other bidder’s approaches to buying tax defaulted real estate. When you do that, you put yourself into a better position to be a well-rounded investor. In addition to knowing the reasons why others bid, you’ll also understand why these folks won’t really impact your business in the long run.
In today’s livestream, we’re going to talk about 5 reasons other bidders will pay more than you will.
1) The clueless bidders. And this one is, unfortunately, fairly common. They just don’t know what they’re doing. They don’t know how to value properties correctly, don’t know which properties to buy, don’t understand how the process works; quite literally, they are the poster children for all the videos I make about beginners making mistakes. These bidders overpay simply because they don’t know any better. And they’ll be out of business within the next year or two, or whenever they run out of money since they’re making lousy investments.
2) The next one is that the bidder has some sort of an emotional or financial attachment to the property. And these folks will usually will pay any price to acquire it. It could be the childhood home that they grew up in. It could be a situation where it’s the ugliest house in their own neighborhood and increasing it’s value will also increase their own value. Perhaps they’re buying it for their daughter or son to move into as their first home. Maybe it’s the home their grandmother lives in. There are a number of reasons someone could have an emotional or financial attachment to a property, but just understand that these bidders are usually only there for this specific property. And I wouldn’t get in their way since they’ll likely pay any price.
3) The next type of bidder that overpays is the one who gets caught up in the auction. I remember attending an auction 10 or 12 years ago, when a builder friend came to the auction with me. I didn’t even realize he wanted to purchase any properties, but he started to bid on a property. Then he kept bidding and kept bidding. He ended up grossly overpaying for the property. After the auction I asked him why he paid so much and his response was that he didn’t want the other bidder to get the property. It had become a competition. And this happens to many bidders. Perhaps it’s not a competition between them an another specific bidder, but perhaps they feel left out or are inpatient and buy the first property they can afford. It’s a recipe for disaster and I don’t recommend it.
4) The next type of person that overpays are the bidders with deep pockets. Perhaps it’s institutional money, or they have some sort of profit sharing fund setup, whatever it is they have extremely deep pockets and often operate on very thin margins. These types of buyers usually go after the less risky properties they can rent out or resell and make a slim margin. Instead of judging their performance on a property by property basis, they judge their performance on a portfolio or year over year basis. It’s hard to compete with these types of buyers because they are flush with cash, but the good news is that they only typically target specific property types.
5) The last type of buyer the overpays are simply those bidders with different objectives than yours. It’s easy to judge someone based on how much money they paid for a property. But, a person who wants to buy a home to gut, remodel and resell and is looking for a homerun will certainly pay much less than someone who is going to put a fresh coat of paint on the walls and plans on holding that property for the next 30 years as a rental property. Likewise, someone looking to flip a vacant lot is going to want to spend much less than a builder who is buying that vacant lot to build a spec house on since he can make most of his money in the house itself instead of the land. Another example is someone who might buy a property with plans to rezone it to commercial and increase it’s value – it’s worth more to him then someone who will keep it residential perhaps. There are so many different objectives out there, so be sure you know what someone plans to do with a property before judging how much they spent.
So, there it is. Five of the different reasons bidders choose to overpay for properties. At the end of the day, don’t get frustrated. Just develop strategies that allow you to work around these bidders and minimize competition. And we have a few videos here on YouTube on doing exactly that and of course we go into deep detail inside the academy.
I hope you’ve enjoyed today’s livestream. If you enjoy these livestreams, be sure to let us know by subscribing to our channel and clicking that thumbs up button below this video.
And of course these livestreams and videos are only just the beginning when it comes to the training we offer. If you’d like to take advantage of our more advanced training, be sure to head to TaxSaleAcademy.com. That’s taxsaleacademy.com.
That’s it for today guys. Make it a successful day.